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What Buyer's Market?

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by Leo Jakobson |
November 28, 2016

For months now, the incentive, meetings, and conventions market has been buzzing with reports that hotels no longer have the upper hand in contract negotiations, and that a buyer's market is here. During several educational sessions and roundtables at the inaugural Global Incentive Summit taking place in Monaco this week, the consensus was that reports of a buyer's market are premature.

One such report, the month-old CWT 2017 Meetings & Events Forecast, predicted that "North America will move to a buyer's market with hotel supply expected to surpass demand for the first time since 2009," and it advises that planners "be flexible with destinations and dates to take advantage of this market change."

But during lunchtime roundtable discussions yesterday at the Global Incentive Summit -- which is organized by Incentive's parent company, Northstar Travel Group -- there was considerable skepticism that a buyer's market really exists. One table, helmed by Kevin Hinton, CEO of the Society for Incentive Travel Excellence, said that "it kind of depends" on a number of factors, notably the destination. "Our table disagrees" that it's a buyer's market, said the group headed by Anne Candy, founder and global event producer at Signature by Anne Candy.

There was no equivocation from Monday's keynote speaker, Michael Dominguez, senior vice president and chief sales officer of MGM Resorts International and an outgoing co-chair of the Meetings Mean Business coalition, as well as the 2013-2014 chairman of Meeting Professionals International. "In the top 25 U.S. markets, the idea that it is a soft market, a buyer's market, is just not true," he said, following up with an overwhelming flood of data to support his position.

The supply of new hotels "is just not helping groups," Dominguez said, adding that one reason is that the new properties being built are largely in the limited-service category, with little if any meeting space (and even less incentive group business). In the three hotel categories that dominate incentive travel -- luxury, upper upscale, and upscale -- all have an annual occupancy rate of about 75 percent, he continued, noting that this means they are essentially full. "We are nowhere near going into recession in the hotel world," he affirmed.

In fact, hotel revenue per available room is up everywhere except for North Africa and the Middle East, which Dominguez attributes to terrorism.

Another factor is that a lot more people are traveling and staying at hotels, Dominguez pointed out, noting that "the transient business is so strong in the top 25 markets." Non-group business is 140 percent of what it was in 2010, he said, adding that the older Millennials in the 28-34 age range are traveling more, and boomers are not traveling less. "Usually when one generation moves in, the older one moves out, but boomers are not stopping their travel," he said.

One takeaway from this is that the only non-peak days left for incentive and meeting planners to take advantage of are Sunday and Monday. Another is that the strong-and-getting-stronger dollar might be making the U.S. much more expensive for international groups, "yet we have not seen it impact travel to the U.S.," Dominguez said. An exception is the in-bound Brazilian market, which is suffering economic problems at home, but the huge growth in international travel by the Chinese is more than making up for it.

Dominguez, who has spent a great deal of time in the last few years speaking at MICE industry events with the message that planners must learn how hotels make money if they want to be effective negotiators, pointed out that hotels need $150 in food-and-beverage spending -- a key factor in group contracts -- to equal the profit of a $50 increase in their room rate that a leisure tourist can provide.

Finally, the burst of consolidation and buyouts in the hotel industry -- starting with but not limited to Marriott's acquisition of Starwood -- "is not going away," Dominguez said.